Taking a Closer Look at Zynga Stock

Gaming stocks had a tough 2021, and that included Zynga (ZNGA). The company’s shares succumbed to pressure and crashed in 2021.

The stock did witness a rally post its third-quarter results but that was short-lived.

However, the company has been taking some important strategic decisions since then which has helped it gain back a significant portion of its lost value.

The shares of the company are now 15% down compared to last year, but in the past six months, the recovery has been a decent 18%. Moreover, this year so far too, the stock has gained close to 40%.

Looking at the kind of strategies it has been adopting and the amount of potential the gaming industry holds, the market feels there is some decent long-term potential for this stock and is worth holding at this moment. I am bullish on the stock.

Zynga is a United States-based gaming company that develops and operates social video game services globally. It focuses on connecting the whole world through its gaming services, and usually targets mobile platforms like Apple iOS and Google’s Android operating systems and social networking platforms like Facebook and Snapchat for its game launches. It also provides advertising services to brands.

The online gaming industry saw a huge boom since the onset of the pandemic, and it is expected to grow even more in the coming years. As per research by Fortune Business Insights, the gaming market has seen an incredible growth of 38.24% in 2020.

The industry was valued at $229.16 billion in 2021, is expected to grow into a huge $548.98 billion industry by 2028, depicting a CAGR (compounded annual growth rate) of 13.2% during the period.

This rate is lower compared to 2020 but the industry size of $548.98 billion is extremely attractive and is full of opportunities for companies like Zynga.

After the completion of Zynga’s acquisition by Take-Two Interactive, the company will be in a far better position to get hold of all the incoming opportunities.

Betting on Take-Two

Over the past couple of years, Zynga has been making some significant acquisitions in the ad focused gaming market. However, the privacy changes on iOS and Android have kind of dampened its outlook.

The news of its acquisition by Take-Two Interactive, another video game juggernaut that has made successful games like Grand Theft Auto, Red Dead Redemption, and NBA 2K, has already created a positive impact in the market.

As per the said announcement, Zynga is soon going to be a part of Take-Two Interactive and the deal is expected to be closed by the next year. Post that announcement the shares of Zynga have started showing a positive trend, as the market is of the opinion this acquisition is going to bring certain synergies including revenue linked synergies to the table.  

Zynga already has strong intellectual properties. Its acquisition by Take-Two Interactive is expected to bring in several other benefits and help it position itself as a leader in the global interactive entertainment space.

Take-Two has said that Zynga has high-class gaming studios that can help it develop new mobile games based on its own intellectual property.

Still Bleeding Cash

Zynga’s finances have been improving over time though the pace in growth is quite slow. In its recent quarterly report for the quarter ending December 31, 2021, the company’s average mobile daily active users increased by only 3%, but the average mobile monthly active users were up by 38%.  

Quarterly revenues of the company increased by 13% to $695 million, and the quarterly bookings reached $727 million, indicating a decent 4% increment.

Out of this, the contribution of the Online Gaming segment was $534 million (7% year-over-year growth) and the Advertising & Other revenue was at $161 million (37% year-over-year growth).

However, Zynga is still generating significant losses and in the fourth quarter of 2021, its losses were much wider than what the market had expected.

TipRanks gives the stock a Hold consensus rating based on three Buys and nine Holds assigned over the past three months. The average Zynga price target of $9.94 suggests 10.8% upside potential.

NFT Games

NFTs have been on the trend since last year, and the craze is not going to fade anytime soon. Zynga is preparing to launch its NFT games sometime this year, and the NFTs might be based on its successful game releases like Farmville and Words with Friends.

The company has concerns too that this might cause confusion for current players and hamper those games. To overcome that it might even launch a new game to make use of NFTs.

Zynga has a grip over a large market and it is one of its core strengths. The company now needs to improve its operations largely to stop the cash bleed, and try means which can aid in its revenue growth.

Its acquisition by Take-Two Interactive can prove to be a game-changer, but there is still not sufficient data to prove the claim.

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